Reuters and Bloomberg criticized South Korean financial authorities on the 19th (local time) for their response to extreme volatility in the Korean stock market caused by single-stock leveraged ETF products on Samsung Electronics and SK Hynix. The foreign media outlets characterized the measures as insufficient to address root causes of market instability. Single-stock leveraged products attracted massive fund inflows, disrupting traditional supply-demand dynamics and transforming the Korean stock market into what Reuters described as a gambling venue, with volatility rippling across global exchanges from Tokyo to New York.
Reuters and Bloomberg Describe Korean Market as Gambling Venue
Reuters reported on the 19th (local time) that billions of dollars in leveraged investments in Korean AI companies transformed a stock market once considered a reliable indicator of global economic growth into a gambling venue confusing both regulators and investors. The volatility felt across global exchanges from Tokyo to New York damaged portfolios and dramatically distorted investor perspectives on the fundamentals of the Korean market at the center of the global AI boom, according to Reuters.
Alexander Redman, chief researcher at CLSA, stated that Korea previously had long-term trust relationships helping investors capture buying and selling opportunities, but these relationships collapsed, with the primary price driver now being fund inflows from the surge in individual stock leverage funds.
Bloomberg identified the rapid growth of single-stock leveraged products as the cause of Korean stock market volatility. Bloomberg reported that Korean authorities announced several measures to respond to this sharp volatility, but these do not fully address the root causes of volatility. Bloomberg added that this is bad news for the ruling party of President Lee Jae-myung, who pledged to support ordinary citizens through domestic stock market development.
Samsung Electronics and SK Hynix Valuations Fall Below Historical Norms
Reuters analyzed that Samsung Electronics and SK Hynix confused investors as stock prices fell regardless of fundamentals. Reuters stated that price-to-earnings ratios (PER) for Samsung Electronics and SK Hynix fell below 5, failing to properly reflect the full scale of future earnings and not responding to correlations with generally reliable economic indicators. Forced liquidations occurring among Korean retail investors created additional bear market conditions, according to Reuters.
The net asset value of SK Hynix leveraged products listed on the Hong Kong stock exchange increased 20 times since the beginning of the year, with rebalancing fund inflows large enough to affect market fluctuations, Reuters reported.
Florian Neto, head of Asia investment at Amundi, stated that some single-stock leveraged ETFs reach scales four times the average trading volume of underlying stocks. The rapid increase in assets under management shows limitations in applying leverage to single stocks, which can be interpreted as a warning signal, Neto said.
Bloomberg reported that stock price movements of the two technology companies, which account for half of the KOSPI index benchmark of the Korean stock market, showed extreme volatility in recent weeks. SK Hynix and Samsung Electronics stock prices fell 40% and 34% respectively from peaks last month, according to Bloomberg.
Korean Regulators Announce Margin Requirement Adjustments
Korean financial authorities announced measures including increased margin requirements in response to volatility from single-stock leveraged products on Samsung Electronics and SK Hynix.
FAQ
What did Reuters report about the Korean stock market on the 19th (local time)?
Reuters reported on the 19th (local time) that billions of dollars in leveraged investments in Korean AI companies transformed the Korean stock market into a gambling venue confusing regulators and investors, with volatility affecting global exchanges from Tokyo to New York.
How much did Samsung Electronics and SK Hynix stock prices fall from recent peaks?
According to Bloomberg, SK Hynix and Samsung Electronics stock prices fell 40% and 34% respectively from peaks last month.
What did Alexander Redman of CLSA say about Korean market dynamics?
Alexander Redman, chief researcher at CLSA, stated that Korea previously had long-term trust relationships helping investors capture buying and selling opportunities, but these relationships collapsed, with the primary price driver now being fund inflows from the surge in individual stock leverage funds.
